FIAP > Boletín – Recientes > FIAP Study “Analysis of the Executive’s bill of law that proposes a maximum limit on the commissions charged by the Pension Savings Fund Managers in Mexico” – October 2020
10 November, 2020
FIAP Study “Analysis of the Executive’s bill of law that proposes a maximum limit on the commissions charged by the Pension Savings Fund Managers in Mexico” – October 2020
● On September 25, 2020, the Federal Executive submitted a draft bill of law reforming, adding and repealing several provisions of the Social Security Act and the Retirement Saving Systems Act (SAR). The reform proposal includes an amendment to an article of the Act, imposing a maximum percentage on the fees charged by the Retirement Savings Fund Managers (Afores), which will be the result of the arithmetic average of the commissions applicable in Chile, Colombia and the United States.
● Introducing such regulation into Mexican law is a legislative error that will cause irreparable damage to the pension system and its participants, because it introduces a mechanism that links prices to external conditions, subject to a subjective and arbitrary selection of countries, whose pension systems behave differently and respond to particular and endemic conditions. In particular, the commissions charged by the Afores are being capped below the average charged by the Fund Managers of other countries when they had the maturity of the Mexican system, and on lower cumulative savings at lower contribution rates.
● Setting such a low cap on the commissions the Afores can charge will force them to rapidly and sharply reduce their costs, thereby reducing the quality of their services, together with an expected concentration in the Afores market due to mergers or bankruptcy, in order to take advantage of economies of scale. A strong disincentive will also be generated to serve members with low balances, namely low-income young workers close-to-informality, which is contrary to the increase in coverage required by Mexico.
● The implementation of a process of these characteristics should be reasonably gradual, in order to allow participants to adjust as the system acquires greater “maturity.”
● In order to encourage a drop in the commissions charged by the Afores, other elements such as the investment regime, greater freedom to set prices, mechanisms that stimulate competition and changes that contribute to the growth and well-being of its population should be strengthened.
To review this study, please download it here (only the Spanish version available for now).
